Tax Rules On Gifts: Which Gifts Are Taxable And Which Are Tax-Free?

Did you know that the gifts you receive are subject to certain tax regulations? Whether or not a gift is taxable depends on who gave it to you and its monetary value.

Income Tax Rules on Gifts

Festivals like Diwali, Holi, or occasions such as birthdays, engagements, and weddings often involve the exchange of gifts. However, few people are aware that these gifts may be subject to income tax. The taxation of a gift depends on who gave it to you and the value of the gift. Let’s explore these rules in detail.

Gifts Considered Taxable

If you receive a gift from a friend, acquaintance, or someone with no blood relation to you, it may be taxable. However, not all gifts are subject to tax. If a friend or acquaintance gives you a gift worth more than ₹50,000 in cash, or valuable items like property, shares, jewellery, paintings, or statues exceeding ₹50,000 in value, it is considered taxable income. You must declare these gifts in your income tax return. If a tax liability arises after the calculation, you will be required to pay the applicable tax.

Gifts That Are Tax-Free

Gifts received from close relatives are generally not taxable. Close relatives include spouses, siblings, in-laws (brother-in-law, sister-in-law), aunts, uncles, grandparents, grandchildren, and the spouses of your siblings. Gifts from these individuals, regardless of their value, do not fall under the purview of income tax. Even if the gift exceeds ₹50,000, no tax is applicable.

Key Tax Rules to Remember

Spousal Gifts: Gifts between a husband and wife are tax-exempt, as income from such gifts is considered under the concept of income clubbing.

Relatives vs. Non-Relatives: Property, shares, bonds, or even a car received from close relatives are tax-free, but if they come from friends or acquaintances, they are taxable.

Wedding Gifts:

Any gifts received on the occasion of your wedding are completely tax-free. However, gifts received from your employer are subject to taxation.

Gifts Below ₹50,000: If you receive gifts worth up to ₹50,000 in a year from friends or acquaintances, no tax applies. If the value exceeds ₹50,000, the excess amount becomes taxable.

Inherited Property: Property received from close relatives or through a will is tax-free, but tax must be paid if the property is sold.

Understanding these tax rules ensures that you remain compliant with the law when receiving gifts, especially high-value ones. Keep these guidelines in mind to avoid any surprises when filing your income tax returns!